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Tuesday, 28 April 2015

Asian shares edge off seven-year highs as Fed awaited

(Reuters) - Asian stocks pulled back from a seven-year peak scaled on Tuesday as sentiment gave way to caution ahead of the Federal Reserve's policy two-day meeting scheduled to start later in the session.

The dollar clawed back some of its losses against the euro which rose overnight on optimism for progress in debt-laden Greece's ongoing negotiations with creditors.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down about 0.3 percent after earlier touching its highest level since January 2008.

Analysts expected no change in policy stance from the two-day Federal Open Market Committee meeting starting later on Tuesday, as recent domestic data have been weaker than forecast and a strong dollar has crimped export activities.

Market expectations for an interest rate increase have been pushed further down the road, with few investors now expecting a rate hike in June and most predicting a move later this year.

The euro was in focus overnight, climbing to a three-week peak of $1.0927 EUR=, well off its 12-year nadir of $1.0457 plumbed in mid-March. It last stood at $1.0879, down about 0.1 percent on the day.

Greek Prime Minister Alexis Tsipras on Monday reshuffled his team handling talks with European and IMF lenders, a move widely seen as an effort to relegate embattled Finance Minister Yanis Varoufakis to a less active role in negotiations.

Tsipras also said the government's top priority as it faces dwindling coffers of cash was to pay wages and pensions, and added that defaulting on debt was not an option either.

"The market has become used to potentially negative Greek headlines and less responsive to them. It will give more attention when payment deadlines loom closer or should Greece actually have a difficult time making payments," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The firmer euro helped knock the dollar index .DXY to a three-week low of 96.467 on Monday. The index last traded at 96.777, nearly flat on the day.

Against its Japanese counterpart, the greenback bought 119.07 yen JPY=, up slightly on the day, with that currency pair seen rangebound ahead of a Japanese public holiday on Wednesday and the Bank of Japan's regular policy meeting on Thursday.

The BOJ is widely expected to hold policy steady, but there is a slim possibility that policymakers may opt to ease further if the cut to this fiscal year's inflation forecast is unexpectedly big, or if they feel the slowdown in inflation is damaging enough to warrant pre-emptive action.

In commodities trading, crude oil extended its losses made on Monday as ample global supply blunted support from the conflict in Yemen and the falling number of U.S. rigs drilling for oil.

Weekly U.S. crude inventory data is also expected to show another high, and Saudi Arabia pledged to supply more oil to China if needed, which kept traders cautious after prices reached 2015 peaks last week.

Brent LCOc1 was down about 1.1 percent at $64.12 a barrel, while U.S. crude CLc1 shed about 1.4 percent to $56.20.